Tesco and Walmart get green light to move into India

International supermarket chains such as Tesco and Walmart are to be allowed
to set up shop in India as the government bids to revolutionise the
country's ailing agricultural sector.

Foreign retailers would be able to take majority stakes in joint ventures, following a decision by Cabinet ministersPhoto: Bloomberg News

By Dean Nelson, in New Delhi

5:58PM BST 14 Sep 2012

Foreign retailers would be able to take majority stakes in joint ventures, following a decision by Cabinet ministers. It is hoped the retailers will bring their expertise in logistics and cold-chain warehousing to modernise Indian farming and cut food prices.

The government in New Delhi said last November that it would allow 51pc foreign direct investment in "multi-brand retail" only days later to be forced into a humiliating U-turn as key coalition parties threatened to veto it.

Since then the suspended reform has become a symbol of the Congress-led government's paralysis. It has been mired in corruption controversies over the allocation of coal blocks and 2G mobile phone operator licences, while key economic reforms were put on the back burner.

Its new determination to push through economic reforms and reassure investors follows the appointment of former home minister P Chidambaram as finance minister. Since he was hired, the government has suspended plans to levy vast tax bills retroactively on foreign investors like Vodafone.

Friday's cabinet meeting also voted to increase foreign direct investment levels in domestic airlines to 49pc in an attempt to revive its ailing airline industry and allow foreign airlines to take a stake in Kingfisher, the heavily-indebted carrier owned by the flamboyant drinks billionaire Vijay Mallya. British Airways, Emirates and Singapore Airlines are believed to have indicated an interest in his airline in the past year.

The decision to open the doors to supermarket chains like Tesco, Walmart and Carrefour will be left to individual state governments but ministers expect all the Congress-led states and several other progressive states, like Punjab and Gujurat, which is governed by the BJP, to follow suit.

Although ministers hope the move will reassure international investors the government is committed to reform, its priority is the overhaul of its farming and food infrastructure and to speed up the journey of its produce from farm to market. Tiny farm plots, poor roads and the lack of refrigerated transport and warehousing means 40pc of Indian food rots en route, causing billions of pounds in losses every year and sharp price increases. The produce usually passes through as many as five different agents before reaching shops.

Gokul Patnaik, a former civil servant who pioneered the entry of Pepsi into Indian agriculture in the early 1990s and is now one of the country's leading players in agriculture, said he welcomed the decision, and expected to see Tesco and other supermarket giants on Indian high streets and in shopping malls before the 2014 elections.

"It means there will be long-term investment in the supply chain, which is the weakest link in Indian agriculture. I expect there will be some serious reaction in some quarters, there will be strikes and all that and most investors will wait until the reaction dies down. But it will come up in a year or so," he said.

His firm, Global Agrisystems, is one of India's largest logistics and contract farming operators and is likely to be a major beneficiary of the announcement.

Tesco has long voiced interest in India's under-developed market and has been in a joint venture with Tata, one of India's largest multi-national corporations, to develop supermarket logistics and warehousing.